Gaining access to high street credit can often be difficult for start-ups and small businesses, pushing many businesses to seek credit elsewhere. So as awareness around crowdfunding grows, is it a serious alternative to business loans for your business?
Can crowdfunding work for you?
Taking a quick look at popular crowdfunding sites like Kickstarter, the most popular and successful projects tend to be ones which offer a tech-sexy or savvy and marketable product. According to the CrowdfundingBlog the six biggest supported crowdfunding projects ever are:
- Pebble Watch (smartwatch)
- Coolest Cooler (cooler that does everything)
- Flow Hive (honey tap for your beehive)
- Baubax (travel jacket)
- Exploding Kittens (I don’t know either!)
When a business pursues crowdfunding they are often happy with the all-or-nothing risks that come with it. For instance, you could spend weeks or even months raising your profile, getting your friends and family to promote the life out of your product and still not get any backing at all if you don’t manage to reach the minimum threshold figure.
The key to crowdfunding is having your product so well-tested it speaks for itself becoming a simple, understandable concept. For instance ‘Exploding Kittens‘ is a card game for people who like kittens and explosions. Boom!
But crowdfunding is still just a way of exposing your product or business to willing investors. They will only see it if you manage to conduct a healthy amount of old-school marketing and promotion. Some of the more well-known crowdfunding sites include:
- Crowdcube
- Seedrs
- Syndicate Room
- Crowdfunder.co.uk
- Kickstarter
- Indiegogo
The bottom line for a crowdfunded business is that they tend to be either tech startups or based on products that may only have a short shelf life and the exposure, combined with rapid investment can help the company generate quick profits.
Benefits of Crowdfunding
- Can generate product hype before the launch
- Attract multiple investors
- Any business in any sector can pitch for funding
- Enables you to move forward without having to pay off large bank loans
Pitfalls of crowdfunding
- High risk: an all-or-nothing endeavour
- Exchanges investment by offering shares in the business or free product
- You are revealing details of your business plan to the public
- Investors are innately interested in particular innovative brands or technology
Don’t forget your business loan options
For any business that already has an established footing, a business loan will nearly always be a preferred mechanism for funding. Because crowdfunding is seen as a great way of getting on board early for new product launches, existing small businesses might find it difficult to be heard above the noise.
The cheapest money to loan is usually from the banks and will invariably come with no other strings attached other than an agreed repayment structure. If you are lucky enough to have good credit, then either personal loans or business loans will be available to you.
Benefits of business loans
- Guaranteed loan with regular payments
- No equity in the business needs to be offered
Pitfalls of business loans
- Have strict lending criteria
- Can be difficult to qualify for
While crowdfunding can be a great way to generate a lot of buzz around your product (as long as you put in the required marketing miles) in a short period of time, it isn’t a guaranteed way to raise investment. Nearly every business that tries its hand at crowdfunding will also be seeking to secure standard business loan options as well.
Crowdfunding has become a competitive marketplace and more will fail to get their funding than succeed. But that doesn’t mean you shouldn’t consider its merits. If you’re unsure about what type of business finance might be right for you, get in touch for a free, no-obligation business consultation.
